Euro falls as worries increase

The euro fell below $1.24, near a two-year low last night, as Italian borrowing costs soared and concerns mounted over Spain’s banking sector.

Benchmark US Treasury yields fell to their lowest levels in at least 60 years yesterday, and stocks and commodities sold off as fears over the deepening eurozone debt crisis gripped investors.

All three major indexes on Wall Street fell more than 1%, and European and global shares also fell by more than 1%.

Borrowing costs in Spain rose, nearing the 7% level that forced other eurozone nations to seek bailouts. Spain’s stock market hit a nine-year low.

“Uncertainty remains high and headline risk is likely the key driver,” said Camilla Sutton, of Scotia Capital in Toronto. “The fear is that we only have Band-Aid solutions, and we still don’t have a medium-term plan for Europe.”

The FTSEurofirst 300 closed 1.5% lower at 975.74 points. The Euro STOXX 50 fell 2%.

Spain’s Ibex 35 index fell 2.8% to a nine-year low. MSCI’s all-country world equity index shed 1.6%.

The benchmark 10-year US Treasury note was up 34/32, with the yield at 1.6322%.

German government yields also declined as the yield on 10-year Spanish sovereign debt rose to six-month highs on concerns over how Spanish banks will obtain capital to stay afloat.

The euro was last down 0.8% to $1.24 after touching $1.2384, its lowest level since early Jul 2010. It also fell against the safe-haven yen, losing nearly 1.4% to trade near 97.90 yen, a four-month low.

The rise in the dollar as well as fears over the debt crisis dragged down commodities. Copper and platinum both fell as investors piled into safe havens.

“As we’ve seen during other periods of extreme risk aversion, investors go into Treasury bonds, which are yielding record lows, or they stay in cash. It’s preservation of capital,” said analyst Robin Bhar of Societe Generale.

Oil fell 3%. London’s benchmark Brent crude hovered at around $103. US crude traded near $87.80. Gold was down about 0.5% at above $1,560 an ounce.


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